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Karlis Salna

It’s Now or Never for Jokowi to Fix Indonesia After Election Win

Five years ago, Joko Widodo swept to power as a political outsider promising to unlock the potential of the world’s fourth-most populous nation. After winning another term on Wednesday, it’s time to deliver.

Unofficial results showed the man known as Jokowi defeating Prabowo Subianto by a comfortable margin in a repeat of their race five years ago. The nationalist general again threatened to challenge the results -- a tactic that failed the last time around.

The bigger question now is whether Jokowi will learn from the missteps of his first term and take tough measures to get Southeast Asia’s biggest economy humming. Annual growth has averaged 5 percent since 2014, well below his 7 percent target, in part because he balked at measures that would make Indonesia a more favorable destination for foreign investment.

“Jokowi is likely to continue to argue that he is cutting red tape, and to a certain extent, he has,” said Aaron Connelly, a Singapore-based research fellow from the International Institute for Strategic Studies. “But he has been unwilling to tackle the big gripes of project investors related to investor certainty and rule of law. That is a path of much greater resistance, and it is highly unlikely that Jokowi will take that on.”

Meteoric Rise

The former furniture businessman had a meteoric rise when he first defeated Prabowo in 2014, swiftly moving from mayor of quiet city in Central Java to running a nation of 264 million. He proved a quick learner in the corridors of power, building a coalition in parliament that commanded a solid majority.

Jokowi also notched up a number of market-friendly reforms such as reining in fuel and electricity subsidies, helping him return Indonesia’s sovereign rating to investment grade for the first time in two decades. And he lined up more than $300 billion of infrastructure projects, which led to the opening of Indonesia’s first subway line last year after 34 years of planning.

That track record helped boost markets on Thursday, with the rupiah rising to its strongest level in almost two months.

Jokowi was set to hold a limited cabinet meeting on Thursday. With the unofficial tally in the legislative race pointing to a different shape in the parliament, there may be scope for the president to go into his second term with a new team. He may even boost the ranks of reformists to make it easier to take on the country’s entrenched powers.

Golkar, which holds several posts in the current cabinet, is on track to lose seats in the parliament. It’s share of the popular vote was at 11.7 percent with 87 percent of the sample counted, according to Kompas. In 2014, it won 14.7 percent percent of the popular vote.

"I would admit in the past we were hampered by various vested interests and a lot of resistance to reform, but again, I think a double-digit lead is a very solid election outcome," Indonesia’s investment board chief Tom Lembong said in an interview on Bloomberg TV on Thursday. "It gives the president a very strong mandate to now much more easily overcome the various resistance to the policy reforms."

During his first term Jokowi also subsequently reversed course on subsidy reform, and spooked investors by embracing resource nationalism. His government wrested control of assets from companies such as Freeport-McMoRan Inc., Chevron Corp. and Total SA, saying it aimed to turn Indonesia from an exporter of raw materials to a supplier of processed commodities.

Indonesia’s currency got hammered last year during an emerging markets rout, falling to a two-decade low. Those vulnerabilities remain as a failure to stem an investment drought and fix the energy sector has exacerbated a current account shortfall of close to 3 percent of gross domestic product, according to Kevin O’Rourke, a political analyst and publisher of the Reformasi Weekly newsletter.

‘Rocky Road’

“The next term is going to be a rocky road,” he said. “The economic forces are going to compel him to pay attention to economic reforms, but it’s not guaranteed that he will because he’s really shown a preference for taking a cautious approach.”

A big reason Indonesia hasn’t hit Jokowi’s growth target is a failure to attract more investment in manufacturing and services. That largely comes down stringent labor rules that price out labor-intensive manufacturing and make it hard for companies to attract foreign talent to move up the value chain, former Indonesian Trade Minister Mari Pangestu told Bloomberg Television.

“This is part of the big challenge for Indonesia, whether it’s reforming the labor laws, improving the investment climate, infrastructure,” she said on Wednesday. “You can’t be part of the global value chain if you’re not going to be able to increase the skill level of your workers.”

With Prabowo likely out of the way, Jokowi may be able to avoid some of the bruising political fights that wounded him in the past five years -- particularly over Islam in a country that is roughly 90 percent Muslim. His vice-presidential pick of Ma’ruf Amin, Indonesia’s senior-most Islamic cleric, may have fended off attacks from hardline groups even while raising concerns he may outlaw same-sex marriage.

Jokowi will now need to fulfill a host of promises made on the campaign trail, including providing free education, millions of jobs for young people and continuing an infrastructure building boom that saw him unveil $350 billion of projects in his first term.

“A ‘consensus-based approach’ to policy making characterized by backroom deals and political horse-trading between the executive and legislature will remain the norm,” said Hugo Brennan, principal political analyst with Verisk Maplecroft.

--With assistance from Arys Aditya.

To contact the reporter on this story: Karlis Salna in Jakarta at ksalna@bloomberg.net

To contact the editors responsible for this story: Daniel Ten Kate at dtenkate@bloomberg.net, Ruth Pollard

©2019 Bloomberg L.P.

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